Keywords
GARCH-MIDAS, asymmetric volatility models, volatility prediction, high-frequency data, COVID-19 pandemic
Abstract
Purpose
We address the problem of forecasting USD/CHF volatility at the beginning of the COVID-19 crisis. We chose popular currencies (Swiss franc and American dollar) in the period 1.07.2020 to 31.12.2020.
Design/methodology/approach
We employed several volatility models, including APARCH, EGARCH, GJR-GARCH, TGARCH, and GARCH-MIDAS, on high-frequency USD/CHF data. Particular emphasis was placed on asymmetric models to capture volatility asymmetry.
Findings
The highest volatility occurred during the first wave of the COVID-19 pandemic. Volatility forecasts are most accurate with EGARCH and GARCH-MIDAS models that incorporate long-term asymmetry, particularly when predicting volatility over a longer planning horizon. GARCH-MIDAS models with short-term asymmetry perform best in the sample but are inferior in forecasting future volatility (out-of-sample).
Originality
The originality refers to the subject of study (exchange rates instead of stocks), the methods used (GARCH-MIDAS, asymmetric volatility models), and the particular crisis period (the outbreak of the COVID-19 pandemic).
Research limitations/implications
Even in a market of relatively low volatility, such as forex, volatility reveals both long- and short-run components during the pandemic crisis and some asymmetry. Therefore, the use of more complicated methods is sometimes not justified by the improvement of prediction accuracy. The results are limited to specific data and a crisis period. Therefore, in the future, we need to determine whether these methods are effective in periods with average volatility.
Acknowledgments
Funding
The research received no funds.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and publication of the article.
Declaration about the scope of AI utilization
The authors did not use an AI tool in the preparation of the article.
Recommended Citation
Gaweł, A., & Kudła, J. (2025). Volatility of the USD/CHF exchange rate at the beginning of the COVID-19 pandemic. Journal of Banking and Financial Economics, 2025(2), 42-59. https://doi.org/10.7172/2353-6845.jbfe.2025.2.3
First Page
42
Last Page
59
Page Count
18
Received Date
10.10.2024
Revised Date
22.05.2025
Accept Date
21.07.2025
Online Available Date
29.08.2025
DOI
10.7172/2353-6845.jbfe.2025.2.3
JEL Code
C53, F31, G17
Publisher
University of Warsaw
